Research on World Agricultural Economy

This study presents a systematic review of the performance of rural financial markets in developing countries, focusing on financial outreach, client poverty levels, loan recovery, and institutional sustainability in relation to Microfinance Institutions (MFIs). It highlights the implications of the findings for rural development policy in Ghana. A systematic literature review of 29 journal articles on microfinance, spanning 2010–2023, was conducted. A random-effects meta-analysis was conducted for 19 comparable studies, producing pooled effect sizes and heterogeneity statistics. The findings revealed that microfinance institutions served poorer clients more than traditional banks did, as shown by their performance in expanding financial outreach and serving low-income rural clients. However, the results also show that improved outreach tends to favour the “better-off poor” rather than the extremely poor. The MFIs often experience higher loan default rates and lower profit margins, raising concerns about long-term sustainability. The findings also show persistent trade-offs between outreach and service efficiency, as well as variations in regional performance, highlighting the importance of using multiple performance indicators when evaluating MFIs. The study recommends the need to improve access to digital financial platforms to expand outreach, putting in place efficient governance structures, and implementing targeted financial literacy programs to enhance MFIs’ sustainability. The study further recommends a systematic integration of MFIs with community-based financial mechanisms such as village savings and loan associations (VSLAs) to help extend services to extremely poorer populations excluded from formal microfinance.